Fis Plan To Adopt Independent Stand On Takeovers

The financial institutions (FIs) are expected to follow an independent line while deciding on divesting their stake in companies facing a takeover bid and will be influenced only by two factors: Whether the takeover is in the interest of the targeted company and whether the sale of shares makes commercial sense.

We are totally free to decide on whether to accept an offer for sale of shares to a party attempting to take over a company, said K V Kamath, managing director and chief executive officer of the Industrial Credit and Investment Corporation of India (ICICI).

Kamath further added that a decision on selling off shares to a predator would be taken only if it is in the interest of the targeted company and the takeover is within the parameters of the takeover code.

 

Sources in other financial institutions said that they, too, would be free to decide on the sale of shares.

They said that the finance ministry was initially in favour of the FIs selling their stakes in sick companies under the Board for Industrial and Financial Reconstruction (BIFR) without any hesitation as long as the takeover bid on them was attempted within the broad parameters of the new code.

Subsequently, even the ministry has given indications that the FIs could follow an independent line, the sources said.

However, there is a considerable doubt on whether the Life Insurance Corporation (LIC) and the General Insurance Corporation (GIC) would be able to act as independently as other FIs as far as deciding on sale of their shares in targeted companies is concerned.

LIC and GIC also hold substantial chunks of shares in many domestic companies and have traditionally conducted themselves almost entirely at the behest of the finance ministry in matters such as sale of shares in companies or on the question of supporting existing managements.

With some banks already giving indications of even providing funds to finance takeover of companies, the independent line of action by the FIs will set at rest speculation about the effectiveness of the new takeover code, due to be notified in a week.

At the same time, it will set the alarm bells ringing for those corporate houses in which the promoters have less than a majority or 26 per cent shareholding. A minimum of 26 per cent shareholding is needed to ward off any special resolution against the promoters.

In most of these corporate houses, the FIs hold substantial stakes. Such companies will be easy targets under the new takeover code. But, because the financial institutions hold large chunks of shares in these companies, they will always play a key role in the success or failure of a takeover bid.

The debate over the takeover code has so far centred round the question as to whether the finance ministry will give the FIs the freedom to decide on selling their shares in companies to a predator.

The sources believe that after the notification of the takeover code, there will be a substantial change in the domestic corporate structure.